Back to School: Understanding Salary Sacrifice
We all remember the hell that is double maths… it loomed in your timetable, completely ruining the zen of your week. When the measly 5-minute mid-lesson break was wet with dull skies, which just made the lesson that much more awful. And for what? When was the last time you had to use Pythagoras’ theorem? Or carry out a quadratic equation in the real world? Well, unless you’re reading this in a nuclear research lab, I may have already lost you. Although, there is a very good reason you should pay attention to this maths lesson. It will literally multiply the money in your pocket while reducing the amount the taxman keeps! In this week’s session, we’ll be understanding how salary sacrifice works.
Understanding Salary Sacrifice is Easy as Pi!
Salary sacrifice is a brilliant way of switching the equation of net and gross pay back into your favour. Let’s recap on a lesson from life. For every pound you earn, at least above a certain level, the taxman takes his cut. It’s 20% for most, and that’s on top of 12% national insurance. The salary you have left is your own. Well, most of it is. You can use it to buy whatever you want, but on many items, you’ll pay more tax in VAT form.
Now, imagine you could dodge all of these taxes to keep more of your money. Ahh, now I have your attention.
Let’s Do Some Simple Addition…
With salary sacrifice, items that you’d normally fund can be added into part of your package. Let’s take a salary of £25,000 for example. You can take a voluntary pay cut and receive £20,000, a car, and a bike! You make a variety of savings by doing this and it costs your employer nothing!
Savings vary, but they will always include income tax and national insurance. However, it can also include corporate discounts and VAT! All of these savings can make some items, such as cars, almost half the cost you would pay retail!
Though, as your form tutor has hopefully taught you, the only certainties in this world are death and taxes! The gov’t taxes the benefit you get, eroding and sometimes taking away all of the tax savings.
The Savings are Huge with Cars
In addition to tax and NI, you also benefit from those corporate discounts and save most of the VAT! The benefit is taxable, but go electric and there is no tax this year! In fact, there’s minimal tax all the way up to 2025! This means you get to keep most of those savings! This makes electric cars on salary sacrifice cheaper than running a 5-year-old diesel!
Bad news if you do go for a large diesel engine. You’ll pay so much tax on the benefit it could actually make it more expensive to source this way! That’s why it’s best to stick to electrics.
Salary sacrifice is an important lesson to learn. Revise what you have learned and put it into practical use; you’ll save thousands! It will also benefit the planet, which brings us nicely to next weeks science lesson!
Did you miss last weeks session? No worries, you can come to after school revision here! Also, do you feel like delving deeper into understanding salary sacrifice? Get in touch today!
Tags : 2025, back to school, Car savings, cars, Corporate discount, electric cars, Go Electric, Money, National Insurance, Salary, Salary Sacrifice, salary sacrifice scheme, savings, Tax, VAT